Vodafone sees slowing revenue growth

Vodafone Group forecast slowing revenue growth and a drop in margins next fiscal year and said it could take a goodwill knock of as much as £28 billion, blaming a worsening mobile market.

Shares in the world's biggest mobile phone group by sales fell as much as six per cent after the news yesterday, and analysts said pressure on chief executive officer Arun Sarin would intensify.

"It's another incremental worsening of management expectations," said Robert Grindle at Dresdner Kleinwort Wasserstein (DKW). "It will put Mr Sarin under more pressure. The more the share price falls, the more pressure he will be under."

Mr Sarin, the subject of frequent market rumours he might be forced to resign as Vodafone's growth slows, told reporters he had the full support of the company's board.

Vodafone's problems only reflected the tough market it was operating in, and in any case the forecasts for 2006-7 were in line with analyst expectations, he said.

The firm is facing increased competitive intensity and lower mobile tariffs in several of its key markets in Western Europe, notably Germany and Italy. The promised boost from new 3G services has been slow to materialise and the group faces an uphill task in turning around its Japanese operations.

Vodafone said it expected to write down the carrying value of goodwill on its balance sheet by between £23 and £28 billion, reflecting lower growth prospects than previously assumed. Vodafone said most of the write-down was attributable to its operations in Germany.

The German business is a result of its record £121 billion hostile takeover of Germany's Mannesmann in 2000. The business had goodwill of £35.5 billion at the end of September last year.

Vodafone said the decision to impair goodwill was part of the group's annual business review plan. "Reflecting the increasingly competitive environment in the industry, Vodafone has incorporated into its latest 10-year plan a lower view of growth prospects... than those it has used previously."

At 1:02 p.m., Vodafone shares were down 2.8 per cent at 113-3/4 pence, off a low of 109-1/2 pence. The shares fell sharply after its half-year results last November and have shed more than 12 per cent since then.

Vodafone's outlook, which comes at a time of mounting gloom about the European telecoms sector prospects, further soured the mood, with the DJ Stoxx telecoms index down 1.4 per cent. Vodafone has underperformed that index by around 12 per cent in the past 12 months. Vodafone said it expected organic mobile revenue growth - excluding acquisitions or - of between five and 6.5 per cent in the year to end-March 2007, down from its forecast of growth in the middle of a six to nine

Analysts expected further pressure on Vodafone to exit its US venture, Verizon Wireless. Some investors have called on Vodafone to sell its 45 per cent stake in the US number-two mobile operator and return the proceeds to shareholders.